Voluntary Retirement Scheme: An Exit Policy to Quit the Job

Read this article to learn about the voluntary retirement scheme in India!

After the reforms of 1991, employers’ organisations demanded that the government should frame an ‘exit policy’ that would enable any industry to close down.

This was fiercely opposed by trade unions, and the government decided against such a policy. At the same time, it allowed companies to reduce their workforce through a process known as the Voluntary Retirement Scheme (VRS).

The companies could offer voluntary retirement to their workers by giving them a better retirement package than what they would have got under the law. This would lure workers to accept these terms and quit. In reality what happened was that companies did offer the VRS but if the response was not as much as expected, they would use other tactics to convince their workers.


For example one of the commonest ones was of spreading the rumour that the factory or office concerned would close down within a short while and workers would be transferred to another plant far away; hence if workers did not accept the time-bound offer of VRS, they would have to either move to the other factory or, if they wanted to resign they would get only the compensation provided by law and nothing more. It was found that the first offer of VRS had a lukewarm response from employees, but the second round (after these rumours were spread) fared much ‘better’.

Myrtle Barse (2001) studied the impact of this scheme in some large companies in Mumbai. She found that it had a marked impact on the nature of employment and in changing the quality of life of the workers. Her paper has case studies of workers who have taken VRS and how their lives changed.

Most could not find alternative work and their compensation evaporated within a few years. Their living standards fell drastically, and some could find only low-paid work in the informal sector. She suggests that the government or other organisations such as their trade unions or NGOs should help workers who accept VRS in investing their money properly and also provide for health insurance.

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Ernesto Noronha (2001) studied the Bombay Dock Labour Board (BDLB) and how globalisation had changed its functioning. He noted that by setting up the BDLB, a modicum of social security was provided for a sudden economic crisis and at times of recession when work was not readily available.

The advent of globalisation and containerisation had reduced the need for labour in the docks The Board had to resort to VRS for the workers which turned out to be disastrous for them and for the Board too as it faced a fund-crunch after paying the large sums as compensation. This is one case when both employer and employee suffered because of VRS.

Ratan Khasnobis and Sudipti Banerjea (19%) came to similar conclusions while studying VRS in Durgapur in West Bengal. Their study explored the mechanisms behind the workers acceptance of VRS in the Durgapur Industrial Area.

Though there was willingness on the part of workers to accept compensation in some cases, there were a sizeable number of instances of coercion from the management. Moreover, the amount received was often used for unproductive purposes and the worker thus had little left to start self-employment ventures.

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